The largest reform to Bulgaria's energy sector in years is set for this summer: all non-household consumers will be obliged to buy electricity from the energy exchange starting October 1. Hence, even the smallest businesses such as shops, hairdressers, cafes and law firms, etc. will have to enter the free market and sign a contract with an electricity trader.
This reform is a big step for the Bulgarian energy sector and should have been enacted a few years ago, but it has been constantly postponed. Bulgaria is the only country in the EU where both a regulated and free electricity market exist. The first is for household consumers and small businesses, the second - for everyone else. However, this co-existence blocks competition creates opportunities for cross-subsidization between the two sectors, distorts prices, benefits certain producers and hinders investment. But it provides political comfort.
In recent years, the European Commission has consistently pointed out that physical, economic, and political barriers still exist in Bulgaria, hindering the great goal of a common electricity market, which is the basis of the Green Deal and the overall transition to a low-carbon economy. But the opportunities for postponement seem to be over and Bulgaria will have to take quick steps.
The reason - the European Commission has set the entry of all companies on the free electricity market as a condition for the introduction of the so-called capacity mechanism - a scheme through which Bulgaria will be able to keep alive coal-fired thermal power plants and especially state-owned TPP Maritsa East 2. This model will also replace the payments for cold reserve, bring the long-term contracts of TPP AES Galabovo and TPP ContourGlobal Maritsa East 3 into compliance with EU rules, and also make the energy market slightly more transparent.
What is changing?
The Energy and Water Regulatory Commission (EWRC) now sets the prices at which final suppliers sell electricity to household and non-household customers for sites connected to the low-voltage grid. However, amendments to the Energy Act remove the word "non-household", which means that practically all legal entities will have to enter the free market and choose their electricity supplier.
Another important change is that the electricity supply companies of CEZ, EVN, and Energo-pro will be unable to directly supply electricity to the sites of non-residential end customers who, for one reason or another, are left without a supplier. This may be due to missed deadlines or because small businesses, such as hairdressing salons, clothing stores, law firms, and offices, are not of interest to electricity traders and there is a risk that they will be unable to find a supplier.
This will be the biggest danger to business - to be left without a supplier after October 1. Then, by law, these customers will be assigned to a supplier of last resort, de facto the power supply companies of CEZ, EVN, and Energo-pro, but their electricity prices will be 2.5 times higher.
The EWRC will also now be able to watch out for restrictive contractual practices and exclusivity provisions that may prevent all customers, regardless of their type, from concluding contracts with more than one supplier at the same time or from restricting their choice of suppliers. Such a violation will entail a fine of BGN 50,000 to 1,000,000 (EUR xxx - xxx).
Who is affected?
The reform will affect nearly half a million sites with a separate electricity meter used or owned by about 300 thousand companies. In the last two years, companies have been returning to the regulated market because of its fixed price, which has also often been lower than the market price. According to EWRC data, more than 55,000 companies did so in 2018 and 2019. In the first 5 months of 2020, however, the process turned 180 degrees and companies began to go back to the energy exchange, as prices there collapsed due to coronavirus restrictions. For comparison, if in 2019 the average price of electricity on the exchange was BGN 95/mWh, from the beginning of 2020 it is about BGN 65/mWh.
But the price of the free market can go up as well because it depends on supply and demand. The reform of the sector will increase the demand for energy on the free market by about 30%, while there are no guarantees for an equivalent rise in supply. The chairman of the parliamentary energy commission, Valentin Nikolov, assumes that the respective amount of electricity, as well as the consumers, will be transferred from the regulated to the free market. But some producers, such as Maritza East 2 TPP, may fail to participate in trading on the energy exchange because of the high price of their electricity, which makes them uncompetitive.
How will the change take place?
Within 15 days from the promulgation of the changes in the energy law, the final suppliers (CEZ Electro, EVN Elektrosnabdyavane, and Energo-pro Sales) will send a notification for termination of the electricity supply, as of October 1, 2020, to each of its customers. Probably this will be done according to a model prepared by the EWRC.
The consumers themselves will have to choose their electricity supplier under new, quite simplified rules that came into force on June 1. All a customer has to do is to select a new retailer and enter into a contract with it. Most likely, a special online platform will be created for electricity traders to publish their offers so that businesses can make an easier and informed choice.
The application is then submitted to the network operator (EDC) not by the customer but by the new electricity supplier. The whole technical process is carried out ex officio by the respective three electricity distribution network operators - CEZ Elektrorazpredelenie, Elektrorazpredelenie Yug and Elektrorazpredelenie Sever.
Unfortunately, there are also some obstacles. It turns out, for example, that in order for a company to enter the free market, it is necessary to first go through the procedure of initial registration on the electricity market, which briefly means to conclude the relevant contracts for transmission and access to the electricity grid of an EDC, as well as a contract for a supplier of last resort.
|Оpportunities await |
Upon switching from the regulated market to a supplier at freely negotiated prices, and if there is an electricity meter for hourly reporting, the customer is entitled to receive free information on the hourly consumption. This is important, as on this basis the electricity traders can prepare a specific offer in line with the consumption schedule so that the customers can further optimize their costs. For example, if the data show that most of the consumption takes place at night, the supplier will be able to give a preferential price, and if it is only during the day, balancing costs could be optimized by including renewable energy in the mix.
The absurdity, in this case, is that these contracts could be concluded only in person or through a representative with a notarized power of attorney. In practice, this means that the procedure cannot be done entirely online and businesses will still have to go to a notary to authorize the selected electricity trader. The easy way is to choose a supplier at freely negotiated prices to be one of the traders of CEZ, EVN, and Energo-pro.
In their groups are the companies with which the contract for access and transmission to the network have to be concluded (CEZ Elektrorazpredelenie, Elektrorazpredelenie Yug and Elektrorazpredelenie Sever), and also by law, they have suppliers of last resort (CEZ Electro, EVN Elektrosnabdyavane and Energo-pro sales). Thus, all contracts can be presented and signed simultaneously, probably only upon request through the new trader.
However, this severely restricts competition and gives an advantage to certain traders. Therefore, it is expected that there may be additional changes to resolve these uncertainties.